RBI Regulation of Investment Companies: Futile, counter-productive and counter-intuitive

Vinod Kothari |

The RBI has launched a major base-layer study of “base-layer NBFCs”, whereby audit firms will be surveying these NBFCs. Apparently, the audit firms will visit their offices to see if there is a physical office (which means a name plate outside the office), whether that physical office houses other offices too (an anachronistic objective in the age of co-working spaces), track the directors and the beneficial owners of such companies. The RBI’s definition of “beneficial owners” is remarkably different from the very same concept under section 90 of the Companies Act, which, after huge rounds of discussion, settled on certain rules for determination of such beneficial owners, and given the fact that the Companies Act is already tracking beneficial owners, it is interesting to note that the RBI would do its own enquiry into such beneficial owners.

Understandably, this massive exercise, with a budget of Rs. 2.36 crores, has been launched to do a reality check on the 9471 entities forming part of the so-called “Base layer”, which, by the regulators’ own determination, are entities which do not matter much for the financial system. Once again, out of these base layer entities, approximately 97% of the entities qualify as “investment and credit companies”.

Read more